Just four weeks after selling his first venture, a medical supplies mail-delivery company, Matt Berry had already hatched his next entrepreneurial idea.

The notion to start e-discovery software company Lateral Data LP came to Berry after his first company, Houston-based Diamed, purchased and struggled with three different business software packages, only to ditch them in favor of bringing on in-house software developers to write their own internal data transfer programs.

“The software that was available out there was horrible,” Berry says. “I knew there had to be a more efficient way.”

So Berry used the proceeds from the sale of Diamed, which had 70 employees and $10 million in annual revenue at the time of the sale, to start e-discovery firm Lateral Data. In the process, it allowed him to leverage the law degree he had earned but never really used in his first venture.

Berry started Diamed in 1998 with his then-girlfriend (now his wife) after graduating from law school when her father gave them the idea to launch a company that delivered medical supplies through the mail. The two started Diamed in a 375-square-foot office while living with their parents. Berry’s future father-in-law co-signed for a business loan that helped get Diamed get off the ground.

“We both had entrepreneurial backgrounds, and he could see that we had the entrepreneurial itch, so that gave us the confidence to go out and start a company,” Berry says. “There was a lot of trial and error, but we were fortunate that we didn’t have a lot of overhead, so we weren’t burning through cash.”

The venture was, by all accounts, a success, and the sale of Diamed in 2003 gave Berry the courage to act on his idea to start an e-discovery software company that catered to law firms and in-house corporate legal departments — an industry that was just beginning to take shape.

E-discovery is the process in which electronic data is sought, located, secured and searched for use as evidence in a legal case.

And although there were some national firms already dabbling in e-discovery in the early 2000s, the field was still wide open at the time of Lateral Data’s launch. So Berry decided to start straight at the top.

TIMING WAS RIGHT

After spending almost a year — including several starts and stops — working with developers to create an e-discovery services system to market to law firms and corporate legal departments, Berry and a colleague who already had experience in e-discovery work called on powerhouse law firm Fulbright & Jaworski LLP.

After a few trial projects, Fulbright became Lateral Data’s first customer.

“It was definitely a big deal for us as a start-up to get Fulbright as a client,” Berry says. “It was a huge win right off the bat.”

Florinda Baldridge, global director of practice support at Fulbright, says the firm had already tried using three of the big four e-discovery providers, all to mixed or poor results.

So the timing was right when a young Berry entered her office with Lateral Data’s pitch. Baldridge says she took the first meeting essentially as a courtesy. But she liked what she saw.

“There were four big national companies in the space at the time, and that’s just where all the consumers went,” she says. “But when these guys came into our office, there was really an energy there. They were listening, while the others were just telling us what we needed.”

With Fulbright on board, Lateral Data soon landed another marquee law firm client, Fenwick & West LLP, based in California’s Silicon Valley, securing the fledgling firm’s spot as a player in the e-discovery space.

And the work that Lateral Data did for Fenwick ended up being a turning point in the company’s business model: Fenwick became a software client, rather than a services client.

The firm was using Lateral Data’s proprietary software program to handle its e-discovery tasks, and eventually became a “beta” client for Lateral Data to make a push out of services and into the software business.

Since 2009, Lateral Data has been phasing itself out of the services arena to focus on software, using its Viewpoint software program as its flagship product.

“We’ve been making a hard push toward becoming a software company, but we’ve retained our service clients as well,” Berry says. “We’ve been a hybrid for a long time, but it taught us how to create a system that doesn’t have any gaps because we designed a system from a service provider’s perspective.”

As part of that move into software, Lateral Data has landed seven “partners,” or consulting firms that sell its software solutions to their legal clients, during the last several months. Berry says transition from service provider to software provider has been easier than he imagined. While he had expected to sign on six partners by the end of 2010, he has now amended that estimate closer to 12 or 14 partners by the end of the year.

Berry says more than two-thirds of Lateral Data’s revenue now comes from the software side, with less than one-third coming from services work.

RETAIN BOUTIQUE FEEL

Even before the transition into software, Lateral Data, which has 15 full-time employees and five contract developers, was already on a steep growth curve, increasing revenue from $2.3 million in 2008 to $4.1 million in 2009.

Berry expects those numbers to continue upward as the push into software continues. He says while there are about 200 companies that provide e-discovery service work, it is much less competitive on the software side. And all those service providers are using e-discovery software.

But even as Lateral Data continues to grow, the company is still operating like a start-up — in all the right ways.

For example, the company has continued to work with Fulbright & Jaworski on the service side despite the focus on software. And Baldridge says she can recall several Friday evenings when Fulbright called on Lateral Data to complete a project over the weekend. One particular project was assigned at 11:30 p.m. on a Saturday and was turned in by Sunday morning.

“We grew with them, and they grew with us,” Baldridge says.

Berry says it is the company’s goal to retain the boutique feel while expanding into a larger player.

“We see a lot more growth potential,” he says. “Customer demand for e-discovery is very high.”